How will Europe’s secretive media giant cope?

Bauer is the secretive, private company which has leapt, in two dramatic deals, from being Germany’s largest publisher to a world leader. It now employs 11,000 people with a turnover of €2.5bn from 570 magazines, 300 digital services and 50 TV and radio stations across 16 countries. Some 70% of revenues now come from outside Germany. But paying €1.5bn for market leadership in magazines in the UK, Australia and New Zealand is only the start of the challenge in churning media markets. And the scale brings profile and scrutiny. Will the Bauer family’s new generation sink or

Secretive and successful

swim in the glare of publicity?

Much of the challenge will be down to the 30-something Yvonne Bauer who has become the fifth generation boss of a family business which dates back to 1875. That was when the young Ludolph Bauer went into business as a printer on a borrowed press in his Hamburg home. Ten years later, Bauer and his son Heinrich became publishers with the free newspapers Rothenburgsorter Zeitung and Hammerbrooker Zeitung. By 1927, when they had moved to the city address that has been the Bauer headquarters ever since, the family had achieved its greatest success with a circulation of 500,000 for the weekly Rundfunkkritik. They were on their way.

Post-War, Bauer quickly became the country’s largest magazine publisher with the launch of the illustrated weekly Quick in 1948, and the bestselling TV listings magazine Horen ind Sehen, which is still selling more than 700,000

copies. Along the way, Bauer bought up magazine and children’s comic companies, culminating in the acquisition of Neue Post, still one of Germany’s biggest-selling women’s weeklies. That was in 1961, the year the 22-year-old Heinz Bauer, great grandson of the company’s founder, became CEO.

Heinz, who had trained as a printer and studied business at university, hit the ground running. He set about acquiring and launching magazines, including the now 450,00 circulation women’s weeklies Tina and Fernsehwoche – and built ever more modern full-colour printing presses. In 1981, at the regulatory limit of his ability

Heinz Bauer: quiet man goes global

to expand much further in Germany, Bauer set out to conquer the world. He chose to start in the United States.

The New York media establishment were sniffy about Bauer’s decision to make its base in suburban New Jersey, away from the fashionable publishers of high-cost Manhattan. They were even more sniffy about the company’s first magazine launch: the supermarket weekly Woman’s World. It launched regionally in 1981 and went national three years later. Within 10 years, it had a circulation of 1.5million and revenues of $15million. Bauer disregarded the fundamental difference between German/UK/Australia news-stand magazines (where most revenues come from readers) and the US where low-priced subscriptions are used to establish a ‘rate base’ for maximising advertising. It ignored subscriptions and became America’s largest news-stand publisher.

But the company showed it could follow careful testing and solid success with extravagant folly. The 1989 launch of First for Women (later known as First) lost a cool $60million within two years, on the back of a $15million TV launch campaign, generous retail incentives, and 8million copies selling at an introductory cover price of 25cents which retailers were able to keep. This was an attempt to disrupt the US women’s “service” magazine market. First‘s circulation rate base of 4million, emphasised the advertising revenues it was chasing. Bauer said it would only carry one-third advertising pages, compared with the 50% norm for its competitors. They needn’t have bothered: the new magazine slashed its rate base, struggled for ads, chopped and changed editors, and piled up losses.

Learning the hard way in US

One commentator cited First as “an example of how transferring foreign publishing ideas to the United States can be difficult**.” The magazine survived but did not thrive, and today has altogether more modest budgets and 1.2million copy sales. But Bauer quickly cracked the soap opera market. And by 2004, it was publishing two celebrity weeklies In Touch (launched in 2002) and Life & Style (2004) which now have past-their-best sales of 600,000 and 350,00 respectively. Time Inc’s People and American Media’s Star, by contrast, are selling 3million and 800k copies.

Bauer USA publishes 10 magazines and is thought to have remained solidly profitable. Its $370m revenues make it the country’s seventh largest publisher – but with the lowest advertising levels of any company in the top dozen. As significant to the ultra-tribal Bauer family, though, is that the Bertlesmann-controlled Gruner & Jahr, which beat Bauer into the US and UK, had retreated from both markets by 2005.

Bauer’s UK adventure began in 1987, when Konrad Wiederholz, Heinz Bauer’s lifelong friend and US chief, stopped in London with his wife on the way from Hamburg to New York. They bought UK copies of ‘real life’ magazines (then the backbone of their German magazines business) decided they weren’t up to scratch, and launched Bella the same year – just as G&J launched Best magazine. The German publishers together shook up the UK market which had long been dominated by five women’s weeklies, the four biggest of which dated from the first half of the twentieth century and were published by market leader IPC. Bella made its mark by mixing previously-unseen real-life editorial with classic women’s magazine content like fashion, beauty, cookery and home features. It also had low-cost content and production – and a competitively-low cover price.

More significantly, Bella represented the Bauer publishing formula at its best: it was a version of Tina in Germany, Maxi in France and Woman’s World in the US. Another key to Bauer thinking was to concentrate on the content, printing and distribution: for 20 years, they actually outsourced advertising sales in the UK, US, France, Mexico and Poland to former Hearst UK sales director Mike McCafferty.

“Konnie” and Heinz brought to London the aggressive tactics of their US business. By printing the UK magazines on their own presses in Germany or Poland, the newcomers were able to surprise their competitors – and keep costs down. Bauer spent £30m on the Bella launch, distributing a sample copy to every UK household and then letting newsagents have the first issues free of charge. But they also turned the retail market upside down by making their new title ‘sale or return’, breaking the UK convention of magazines being supplied ‘firm sale’ to newsagents which, therefore, themselves suffered losses on unsold magazines. All other publishers

‘50% of UK profits’

eventually followed suit, but not before Bella had eaten into the sales of the traditional women’s weeklies.

Three years after Bella, came Bauer’s mould-breaking launch of Take a Break, which quickly became the UK’s biggest selling women’s weekly. The magazine peaked at 1.3million circulation and still sells 750,000, having carved out its role with puzzles, prizes and, most of all, dramatically-written true life stories. John Dale, the former Fleet Street journalist who edited Take a Break for an extraordinary 20 years, once described it as “writing news stories backwards” to emphasise the personal drama of the news. Bauer promptly exported the winning formula to Germany, while IPC’s traditional weeklies crashed: they now have an aggregate circulation of 800,000 – 10% of the total before the launch of Bella.

Take a Break helped define Bauer’s success with unflashy, unglamorous magazines deriving at least 70% of their revenues from copy sales. From a launch budget of just £5m, Bauer managed to build a weekly magazine which probably accounted for more than 50% of its UK profits. But, just as in the US, the company could still spend millions on a new magazine and stick with it long after failure had become inevitable. So it was with TV Quick, launched with a barrage of TV ads and loss-leading cover prices. Bauer was seen to have made a tactical error as IPC ruthlessly defended its TV Times market leader by launching What’s on TV with which it matched Bauer’s aggressive price-cutting.

That time IPC won, although Bauer stubbornly continued to publish TV Quick until circulation fell to just 100,000 19 years later. Insiders talk of the failed magazine’s massive research budget but say that the whole experience taught them something of Heinz Bauer’s view of editorial content: that talent, flair and originality was not required. Research would tell you what to do. But, to his credit, the unassuming Mr Bauer combined his narrow-minded, formulaic views on editorial with unwavering support for editors who rejected tasteless or tacky advertisements, especially those with profiteering premium phone lines.

TV Quick failed but listings became a big UK business for Bauer

By 2000, Bauer was making UK profits of some £40m. The big splashes were long forgotten and Bauer was profiting from TV listings, real life magazines and puzzle books with the market’s lowest cover prices. Gone were the expensive advertising campaigns in the name of growing profits and piling up cash. Heinz Bauer was narrowly outbid in the 1997 auction for IPC, but his remorseless expansion across Europe underlined the company’s ambition.

But Bauer has always been a very private company. In the UK, for example, its statutory filings give few clues to overall profitability. Even senior managers are told little about the profits of their businesses. Heinz Bauer’s public statements have been limited to an annual press conference in Hamburg; and few former employees anywhere have been prepared to speak publicly about the company.

The exception is former editor Lori Miles, who left Bauer in 2004 after 15 years, during which she launched Take a Break and TV Choice. She told The Guardian: “I have met Mr Bauer. He is a very shy man; that’s probably why he has such a low profile. He is softly spoken and is a proper, charming gentleman. But despite being quiet, there is no doubt when you meet him that he is a powerful man. Do you know that phrase, ‘he speaks quietly, but he carries a big stick’? Well, that’s Mr Bauer.” For others, there were the whispered comments about Bauer’s ‘no-discussion’ edicts on matters of editorial policy; and the owner’s cold anger when his former managing director joined his back-home rival Burda to launch a UK copycat version of Take a Break.

When Bauer swooped to buy the EMAP consumer magazines and radio stations for £1.14bn in the 2007 break-up auction, the speculation was everywhere. Nobody could miss the stark differences between Bauer UK and EMAP. Bauer were based in North London’s low-rent Camden Town, and published Take a Break for socio group C 1C2 women. EMAP were based in London’s theatre-land and published Closer for fashionable ABC1 women. The paper, print and staffing levels seemed to reflect the differences in location, management, style and profile of the two companies. They were chalk and cheese. As a result, Bauer chose to keep its two operations separate (at least, so far), while merging ‘back end’ accounting, distribution and IT. But the Bauer family managed to convey a sense of which cost regime they preferred when they arrived at EMAP’s offices for the first time.

EMAP had not always been so fashionable. It had risen from humble origins as a regional newspaper publisher to become the UK’s second largest magazine group through 20 glittering years of building brands like Heat, Grazia, Closer, Q, Mojo, Empire, FHM, Kerrang, Motorcycle News and Max Power. Despite also developing strong commercial radio and business information operations, the high-flying EMAP had fallen to earth, victim of a hubristic US acquisition, falling magazine sales, weak digital strategies and management upheaval.

Millions from celebrity gossip

News of the Bauer acquisition sent the UK media scurrying for information on the almost unknown German company that had overnight become the country’s leading magazine publisher and the second largest radio station owner. Bauer’s newest employees had just as many questions. In uncharacteristically showy gestures, Heinz Bauer piloted his new UK executives round Britain by private jet to visit the company’s radio stations. And another jet whisked them over to a celebratory Bauer-wide conference in Germany.

For other employees, Bauer’s arrival was marked by a single sheet of paper on every desk followed by “nothing much initially, then gradually the changes seeped in and there was a very real fear,” according to a former executive. “It was scary at first because there was such a big battle to maintain the benefits we already had as EMAP employees. Bauer doesn’t like to offer benefits, just straight salary. So they argued and argued against having a pension scheme, although eventually they did concede. But all the incentive schemes were scrapped in favour of completely discretionary arrangements where Bauer would decide at the end of each year what bonuses to pay to whom. It seemed like a pretty ominous start from a company we thought was not very creative and with which there seemed precious little synergy. It was a pretty dark time.”

That was just the start.

The EMAP success had been based on being adventurous, creative and collegiate. Most of its people had been shareholders. Now, UK executives found themselves confronted by the serious faces of Heinz Bauer and his daughters who would spend hours picking through the specific detail of individual items in the trading accounts on even the smallest magazines. “They would just go on and on about the smallest details and it was very difficult to get their approval for, say, the choice of an editor for even the smallest magazines. They would demand to know why there were so few pictures on this page or that, when more pictures would supposedly be better value.

“They were passionate about the print quality. But the discussions were almost always about quantitative things not qualitative, almost the opposite to EMAP. We could spend 4-5 hours discussing a single caption on page 36 of my smallest magazine. I am not joking! It was all about cost cutting and then about putting in the same publishing, page planning and accounting systems they had in Germany. There was no serious consultation. It was all about ‘we know best’. They seemed to be all about micro management.”

The early atmospherics were momentarily lightened when one former EMAP publisher challenged Heinz Bauer on the stairs as he was found wandering round the building: nobody had recognised the company’s new billionaire owner.

Former EMAP managers identified a pattern in Bauer’s management. The whole clan are said to attend family lunch in Hamburg every Sunday, following which executives frequently receive emailed lists of highly-detailed and abrupt comments about specific magazines, trading items and policy: Things to do. No more cuddly, collegiate EMAP.

Nothing if not populist

Heinz Bauer and daughter Saskia, who led the relationship with their new UK business, seldom engaged in small talk or polite conversation, even before meetings. They seemed uninterested in their new colleagues. Perhaps that was because they also seemed err unworldly. That was an observation from a residential conference attended by Bauer’s British and German executives. A team-bonding quiz exposed the Bauer family members as seeming to have little knowledge of major German news stories or culture. Many of the Brits who noted those little embarrassments also joked that the two nationalities could be identified by their dress: the former EMAP men were scruffy-casual and tie-less, while their German hosts were (in the English phrase) suited and booted.

The company with major international ambitions always seemed strangely parochial, despite generating post-EMAP profits of some £100m from the UK. Then, three big things happened:

In 2010, the 72-year-old Heinz Bauer passed control and an 85% shareholding in the company to his elder daughter Yvonne. His three younger daughters, all working in the business, were each given 5%.

In 2012, Bauer bought the German editions of Cosmopolitan, Joy and Shape from Swiss publisher Marquard. Yvonne Bauer’s breathless announcement said it all: “We are breaking new ground with this move, putting Bauer Media Group directly into a strong position in the premium magazine market. Alongside our strong, circulation-driven portfolio comes expansion into the lifestyle and luxury segment with its vast potential in advertising revenues. This transaction opens up new commercial and distribution channels for us with fantastic brands in both print and digital.” This was

Yvonne Bauer: new boss, new rules

the sign of changing times at Germany’s largest publisher. But, within six months, there was a bigger statement still from the other side of the world.

Bauer sprang from nowhere to acquire ACP Magazines, Australia’s largest magazine publisher, for A$500million. The 11th hour deal was orchestrated by Matt Stanton, ACP’s British-born CEO (and former EMAP CFO) – to the obvious relief of private equity firm CVC which had blown billions of dollars on its disastrous 2007 purchase of ACP and Channel Nine TV from James Packer.

Bauer’s first significant deal in the southern hemisphere was even gutsier than the larger EMAP deal because the family and company were new to Australia. But the ACP people were so much more receptive, after months of threatened insolvency and the pressures of private equity debt. And, although observers believe Bauer over-paid for ACP, the 5-6 x profit price was almost half the multiple of the EMAP deal.

That might have been the reason why Bauer’s early days of ACP ownership in Sydney seemed so different to the dark days at the former EMAP in London. Or it might have been down to the new generation of Bauer leadership. This was demonstrated most clearly by Yvonne Bauer’s unprecedented decision actually to give a newspaper interview to The Australian. In it, the Bauer chief was more enthusiastic, generous and talkative than many of her senior people had ever seen her.

She positively gushed: “Right from the outset, Bauer Media and ACP shared a passion for high-quality and well-produced magazines because we love the printed medium. …With its cleverly devised digital strategy, ACP is a perfect component of the Bauer Media Group – and that’s not all: through the acquisition…. our hope was also to boost our international business…ACP represents our vision for the future…. Australians are willing to pay adequately for information and entertainment. In contrast to our home country Germany, it seems perfectly natural for them to pay for digital products. This is interesting for our company and will undoubtedly also trigger innovation in other markets. ”

Australia’s best loved magazine

Ms Bauer echoed her father’s longtime confidence in the future of printed magazines: “Print is our core business: we make popular, emotional magazines that are read by millions of people every week. Well-made magazines will always find their readers. This has become apparent in the new developments of the past few years, and the adaptation of foreign publications in new markets. In Germany last year, we launched the publication Yours, which is very successful in Great Britain. Of course, it wasn’t a literal translation, but a customised concept for the German market. Consequently, we successfully addressed women aged 50 and up, and this is a fast-growing target group… Strong media brands are the currency we can use to thrive in the digital world. Print and digital offerings profit from each other’s media strengths and are interconnected.” And she has hinted of ambitions to participate in Australia’s radio industry, which has always had a much higher share of total advertising revenue than in the UK.

Yvonne Bauer is tougher, cooler and more micro-focused than she sounds but the warm words played well in a country where foreign buy-outs of Aussie companies, media ownership, and iconic brands like the Australian Women’s Weekly are hot buttons. But her interview also reflected a change in corporate style. She seemed to understand that the sheer scale of Bauer, now as one of the world’s largest media groups – and the biggest magazine publisher in the UK, Germany, Poland, Australia, and New Zealand – called for a new open-ness and accountability. (And, of course, the renamed Bauer Media Australia is expected to generate some A$100m of annual profits, third to only Germany and the UK).

But, if Ms Bauer needed any reminders of how life is changing for this so-private company, she keeps getting them.

Will & Kate: Embarrassing? Who cares?

In September, the French edition of Closer (published under licence by Silvio Berlusconi’s Mondadori company) published topless pictures of the UK’s pin-up Princess Kate against the wishes of Bauer in the UK. And so did ACP’s Woman’s Day. Last week, while UK magazines again stayed clear, Bauer’s biggest-selling Australian weekly, one Woman’s Day, published new holiday snaps of the now-pregnant princess. Testing times for a company that has always tried to avoid controversy.

But it is in the US where Bauer is really starting to feel the heat. After winning one law suit by David Beckham and losing another to the mother of former tennis champion Boris Becker, Bauer is now on the receiving end of a $50million defamation writ from Tom Cruise. The company’s two US celebrity weeklies alleged in October that the Hollywood star had abandoned his daughter Suri. In court filings, Bauer has said its Cruise stories were “true or substantially true”. It is now pressing for the disclosure of the six-year-old daughter’s health records.

Stoking controversy in the US

The case has opened the floodgates for accusations about Bauer journalistic standards. Bad enough, perhaps. But the litigation has also attracted the attention of the award-winning Hollywood news service The Wrap which last week sought to lift the lid on “the darker side to the privately held company, including publication of at least one magazine appealing to neo-Nazis, as well as significant involvement in the distribution of pornography — including Nazi-themed porn movies.” It referred to: Bauer’s Der Landser (‘The Soldier’) magazine which tells stories of World War 2 that (at least sometimes) seem sympathetic to Hitler’s armies; and to the three-year-old neo-Nazi magazine Zuerst!, which was sold by Bauer in 2012 after scathing criticism by influential newsmagazine Der Spiegel. The Wrap further claimed to have discovered Nazi-themed pornography distributed by Bauer subsidiaries over a Bauer-owned internet service.

These activities – and Bauer-owned publications like Geschichte & Wissen which this month promotes coverage of the Third Reich’s “momentous period in German history” – do not signify Nazi sympathies. But they are relatively unusual in Germany (or anywhere else in Western Europe) where, 68 years after the end of World War II, it remains a subject to be handled delicately – or avoided.

For Yvonne Bauer, who was believed to be worried about two weekly sex magazines in the ACP portfolio, the Hollywood criticism is a reminder of the price of becoming one of the world’s media moguls – and also a holder of broadcasting licences in the UK, Germany and Poland. Bauer may not be a public company, but it can no longer afford to be quite so private.

The Bauer boss recently unveiled the company’s global slogan (another first): “We Think Popular”. Whether the secretive company can continue to expand its worldwide empire – after a momentous few years – might just depend on whether she is able to break some ties with the past and make Bauer itself popular. The hacks in Sydney, London and Los Angeles are sharpening their pencils.

29 October 2014 update:

Yvonne Bauer has announced that, after a “tumultuous” first two years in Australia, the company is changing CEOs. Matt Stanton “has decided to leave” and is being replaced by David Goodchild. He is CEO of H.Bauer, the original London-based business which is still managed separately from the former EMAP publisher of Closer, Heat, and Q magazines, and the UK radio stations. The publicity-shy Goodchild is credited, in Ms Bauer’s announcement to staff, with negotiating the acquisition from EMAP. But management of that business has remained under long-time

David Goodchild: a very Bauer CEO

CEO Paul Keenan, for whom Stanton formerly worked in the UK, and with whom he orchestrated the Bauer Australian deal in the first place. Keenan’s performance has, incidentally, been buoyed by the booming radio stations which are now more profitable than his magazines.

What is significant is that Goodchild’s experience has been in managing – for 10 years – the UK company that is least like the former ACP Magazines. It is a typical Bauer business: profit-dependent on readers rather than advertisers, with magazines that tend to be formulaic, relatively low-cost – and have high profits margins.

It is no accident that both Goodchild and his predecessor at H.Bauer came from a background not in journalism or advertising but distribution. This is the very Bauer-like production-oriented publisher of major brands in the TV listings, puzzles, and real life sectors. Its profits have remained relatively solid, and so has its CEO’s place in the affections of the Bauer family.

The Australian management change – and the content of Ms Bauer’s announcement below (partly drafted by David Goodchild himself) – is the closest you will get to an admission that Bauer’s A$500m move into the AsiaPacific magazine market has been a strategic mistake, and that profits have been substantially lower than expected.

It is only two years since Ms Bauer gushed that “ACP is a perfect component of the Bauer Media Group”. But such enthusiasm is long gone, and her description of the past two years as ‘tumultuous’ is evidence of Bauer frustration and disappointment. It should not, though, be seen as a reason for them to quit – but as a sign of the upheaval and rationalisation to come. Bauer is not giving up, and the changing of the guard in Sydney simply reflects a new determination to make the former ACP Magazines into their kind of company. Big change.

I write to you today with the news that your Chief Executive, Matthew Stanton, has decided to leave the company to take up a new appointment with Woolworths.

I would like to give my personal thanks to Matthew for his leadership, professionalism and dedication to integrating Bauer Australia and New Zealand into our group. It hasn’t been easy. In fact, it has been a tumultuous two years in which we have experienced unprecedented challenges with the global economy and digital revolution impacting on our business worldwide.

During this time we have had to take several difficult decisions including the closure of some of our magazines.

Bauer and Stanton in happier times before “he decided to leave”

On the positive side, I have very much enjoyed getting to know you and I am excited about many of the developments achieved in this time, both in print and digital.This year alone, we have seen three magazine launches and many of our digital activities are leading the way within the Group.However, the challenges remain, with pressure on both magazine sales and advertising, resulting in the inevitable commercial pressures on the portfolio.For this reason, it is essential that we have the best person at the helm to take on those challenges.I am very pleased to announce that David Goodchild, currently Chief Executive of H Bauer in London, will be taking on the leadership of the business as CEO.I have known David for many years and he is exactly the right person to be leading the company through its next phase of development. David has been with Bauer for 21 years, has immense expertise and my confidence that he will continue to develop and grow the business.Starting his career in distribution, David soon became an excellent publisher, steering many of the UK’s leading brands and launching the biggest selling title in the UK, TV Choice. Chief Executive since 2004, David also led the acquisition of Emap’s magazine and radio divisions in 2007.

A publisher at heart, David shares my passion for great magazines and is eager to start working with you to take the portfolio to the next level.

Over the coming weeks, you will get to know David better and you will see that passion for yourselves. In the meantime, could you please ensure you give David every support in making the business the success it deserves.